Good afternoon and welcome to SI-BONE's Fourth Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Matt Bacso from the Gilmartin Group, for a few introductory comments. Please, go ahead.

Thank you for participating in today's call. Joining me are Jeff Dunn, President and Chief Executive Officer; and Laura Francis, Chief Financial Officer and Chief Operating Officer of SI-BONE. Earlier today SI-BONE released financial results for the quarter and full-year ended December 31, 2020. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. These forward-looking statements are based on the company's current expectations and inherently involve significant risks and uncertainties. These risks include the impact that COVID-19 pandemic will have on the ability and desire of patients and physicians to undergo procedures using the iFuse implant system, the duration of the COVID-19 pandemic and whether the COVID-19 pandemic will recur in the future. Other forward-looking statements include, without limitations, our examination of operating trends and our future financial expectations, such as expectations for hiring certain training and adoption, active surgeons, new products, clinical trial enrollment, and reimbursement decisions are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by those forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of the most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 3, 2020. SI-BONE disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 8, 2021. And with that, I'll turn the call over to Jeff.

Thanks, Matt. Good afternoon and thank you for joining us. Before we get into the details of the quarter, I want to thank all the healthcare workers taking care of COVID patients as well as the over 100 SI-BONE field personnel who are in hospitals and ASCs virtually every day, as well as the almost 600 surgeons who treated sacroiliac joint dysfunction patients with iFuse during the quarter. In accordance with our pre-announcement on January 7, total revenue for the fourth quarter was a record $22.1 million, a 12% increase compared to the fourth quarter of 2019, and a 9% increase compared to the third quarter of 2020. As an organization, we continue to execute at a high level, which is reflected not only in our revenue growth but also our ability to control expenses and manage operating losses. As we proactively adapted during the early days of the pandemic, one of the most impactful initiatives that has increased surgeon utilization rates and reduced costs has been the rollout of the SI-BONE simulator surgeon training system. This innovative training platform eliminates many of the barriers that we historically have had to overcome prior to the COVID-19 pandemic. Our sales and medical affairs teams can now train surgeons on demand, bypassing the cadaver lab which eliminates radiation exposures for surgeons and staff. Additionally, there are no travel requirements on the part of the physician and representatives, which significantly reduces overall costs and logistical planning. While this has been positive for the company from an efficiency perspective, the key driver has been the positive perception from the surgeon community. Specifically, approximately 45% of all first-time U.S. surgeon trainings from July to December were executed using SI-BONE simulators. The number of trainings continues to ramp, and we expect this remarkable capability will attract many more surgeons in the future. We are targeting the approximately 7,500 spine surgeons in the United States, of which 1,600 have been trained and completed a procedure to date. We're making an impact, but there is still much more opportunity ahead. The enthusiastic reception of our simulators over the last six months, and the ease with which surgeons can be trained have allowed us to more effectively target new surgeons and re-engage with inactive surgeons. Four additional simulators were deployed to the field for training on February 15 and we expect 16 additional units to be deployed by the end of the second quarter. We completed a follow-on offering in October, yielding net proceeds of $71.6 million. We believe that our cash and marketable securities of $196.4 million we had at the end of the fourth quarter, including the proceeds from the offering will allow us to continue focusing on driving sustainable growth. Specifically, given the improved reimbursement landscape with expanded insurance coverage from private payers as well as the 23% increase in surgeon payment which became effective at the beginning of 2020 before the pandemic began impacting our operation, we believe we are in a unique position to expand the market for minimally invasive SI joint fusion. We estimate the U.S. market in 2020 was a little over $100 million, with the potential to be over $2 billion per year in the future. As the current market leader, we will be the primary beneficiaries of market expansion, and to capture this opportunity we are investing in a number of growth initiatives in 2021. We intend to grow our field sales force, leverage our simulators to train surgeons, invest in patient awareness, expand product offerings in sacroiliac joint fusion, trauma and deformity and engage in process improvements and systems initiative to scale the business to profitability. At the end of February, we had 70 direct sales representatives and 53 clinical support specialists. We have also added to our sales leadership team to manage our expected headcount and sales growth in 2021. Effective January 1, 2021, we added a third area Vice President of Sales in the Central U.S. to complement our east and west regions. Finally, we expanded from 12 to 14 regions, promoting three of our top direct sales representatives to regional sales director while backfilling their areas with high-performing sales representatives. Additionally, we have hired a vice president of digital marketing, Brian Broveleit, to spearhead our direct-to-patient efforts and digital marketing initiatives to increase awareness and utilizations of SI-BONE Technologies. Brian has an extensive background and expertise in digital marketing who was formerly with Starkey Hearing, a medical device company and Kellogg Company, and has years of advertising agency experience. We look forward to Brian's impact on our growth. Our initial strategy is to pilot direct-to-patient marketing tactics. Although it is still early, we are encouraged by the results. We are in the midst of a second TV marketing test program in multiple cities as well as making improvements in the operations related to patient inquiries to our call center. We will be evaluating the results of this second direct-to-patient TV test in the next few months. On the reimbursement front, we continue to add exclusive coverage from some of the largest health insurance providers in the United States. Specifically, in December, Humana established exclusive coverage for iFuse in minimally invasive SI joint fusion procedures, adding approximately 13 million covered lives. In addition, Priority Health became the 36th payor to announce an exclusive coverage policy in late December, adding roughly 800,000 lives mostly in the state of Michigan. Lastly, Blue Cross/Blue Shield Association Evidence Street updated its policy continuing to support only triangular implants. Overall, reimbursement continues to be a tailwind for the company with broad coverage across the United States with total covered lives eclipsing 300 million, including approximately 80 million lives covered exclusively for procedures using iFuse. In other reimbursement news, the International Society for the Advancement of Spine Surgery or ISASS, which is the largest spine surgeon-only society in the United States, published its updated policy and guidelines on MIS SI joint fusion. The policy and guidelines remain supportive of continued adoption of MIS SI joint fusion procedures by the clinical and payor communities limited to procedures using a lateral trans-iliac approach, which includes the iFuse procedure. While the ISASS policy did not endorse any specific MIS SI joint fusion system, the updated policy states that most high-level clinical evidence supporting the safety, effectiveness, durability, and economic benefit of lateral MIS SI joint fusion is derived from the use of iFuse. ISASS does not recommend minimally invasive posterior or dorsal SI joint fusion procedures, whether using an implantable device or a product such as bone allograft. In addition to the reimbursement momentum we benefited from in 2020, the number of clinical studies reporting positive outcomes of iFuse continues to increase. Specifically, at the end of 2020, there were 92 different published papers highlighting the breadth, positive results, and consistency of our clinical data. Despite COVID challenges to clinical trials, we were able to enroll more than 40 patients in our SILVIA adult deformity study, a randomized control trial of iFuse Bedrock against S2AI screws alone in multi-level fusions. We expect to have our first readout from the study in 2022. We expect to talk to you quite a bit about new product introductions this year. Our goal is to become the global leader in sacropelvic surgical solutions. In addition to iFuse we have been pleased with the reception by surgeons to iFuse Bedrock, our second product intended to fuse the SI joint in long construct adult deformity cases. We expect to launch our next generation adult deformity product by the end of the year. We've also spoken about applications for our current products for general trauma. iFuse is currently indicated for acute, non-acute, and non-traumatic fractures involving the SI joint. We will be launching a product in the first half of this year that is targeting trauma patients. The product will also have applications for our SI joint fusion core market. To conclude, I would like to take a minute to thank the SI-BONE family. As many of you know, we announced in early January that while I will remain with the company as Executive Chairman, I will be handing off the role of CEO to Laura on May 1. It has been a privilege and honor to work with our remarkable team and lead the effort to help over 50,000 patients today. Laura has been an exemplary leader and operator for SI-BONE since joining the company in 2015. She's an exceptional Executive who is passionate about our mission. She's highly respected by investors in our team, as well as our Board of Directors. She's committed to our principles and values and knows how to lead and execute our strategy to invest in future growth. As Executive Chairman, I look forward to remaining highly engaged with SI-BONE and its strategy and supporting Laura in her new role as CEO. We also announced the promotion of Tony Recupero to President of Commercial Operations. Tony is one of the industry's leading executives and has been with the company for the past five years as Chief Commercial Officer. In his new role, he will be heading up worldwide sales, marketing, reimbursement and medical affairs. Since announcing these senior leadership changes, we are also in the process of searching for our new CFO. We anticipate they will have a new CFO in place by May. We're also excited to welcome Mika Nishimura to our Board of Directors. Mike brings a wide range of financial, strategic, and commercial leadership expertise, having launched disruptive medical technologies around the globe. Most recently, Mika was Vice President of Commercialization at nVision Medical and currently an operational partner with Gilde Healthcare Partners, a $1.2 billion life science focused venture fund. Mika holds a BA in Economics from Yale and an MBA from Harvard. With that, I will now turn the call over to Laura Francis, our Chief Financial Officer and Chief Operating Officer to provide more detail on our financial results.

Thanks, Jeff. As founder of the business over 12 years ago, Jeff has been a pioneer for the use of iFuse to treat sacroiliac joint dysfunction. He's left an indelible legacy and will continue to be a valuable resource as our Executive Chairman. I'm honored and excited to lead SI-BONE during this unique period of opportunity. Turning to the financials, fourth quarter total revenue of $22.1 million increased 12%, compared to the prior year period. U.S. sales of $20.7 million, which accounted for approximately 93% of total revenue in the quarter increased 12%, compared to the prior year period. International revenue of $1.5 million increased 15%, compared to the prior year period. The quarter started off as expected, with October revenues growing at a similar rate to what we experienced in the third quarter of 2020. However, in the back half of November, cancellation rates started to increase driven by the resurgence of COVID-19 cases. In December, these trends worsened, resulting in roughly 90 U.S. cancellations in the month. We estimate cancellations in the fourth quarter represented an approximate U.S. revenue headwind of $1.25 million, which does not include other procedures that were likely not booked in the quarter, due to the surge in the COVID-19 cases. COVID-19 was also a challenge in certain European markets, especially the UK. Although COVID-19 was a headwind in the quarter, we believe we will recapture many of the COVID-19 impacted procedures as infection rates diminish. We ended the year with 64 direct sales representatives and 58 clinical support specialists. In addition, we ended the fourth quarter of 2020 with a record 588 active surgeons, up from 539 in the fourth quarter of 2019 and 567 in the third quarter of 2020. Gross margin for the fourth quarter of 2020 was 90%, compared to 90% in the fourth quarter of 2019. Relative to the third quarter of 2020, gross margins increased by approximately 300 basis points, driven primarily by management of operations expense in revenue recovery. Operating expense increased 6% to $27.7 million in the fourth quarter of 2020, compared to $26.3 million in the fourth quarter of 2019. The increase in costs was primarily driven by higher employee-related costs, and stock-based compensation due to higher headcount, mainly from sales hiring. We also made additional investments in research and development for our new product launches planned for 2021 as discussed previously by Jeff. The increase was partly offset by a reduction in general and administrative expenses in the fourth quarter of 2020, primarily due to the accrual of estimated settlement costs of the TCPA class action lawsuit of $600,000 in the fourth quarter of 2019. Our operating loss for the fourth quarter of 2020 was $7.9 million, compared to an operating loss of $8.5 million in the fourth quarter of 2019. Our net loss was $9 million or $0.28 per diluted share for the fourth quarter of 2020, as compared to a net loss of $9.1 million, or $0.36 per diluted share in the fourth quarter of 2019. To further strengthen our balance sheet, we completed a follow-on offering with net proceeds of $71.6 million in October of 2020. Cash and marketable securities were $196.4 million at the end of the fourth quarter. Based on our current operating plan, we believe that our existing cash and marketable securities will enable us to fund our operating expenses and capital expenditure requirements. Now, I'd like to provide our 2021 outlook. While encouraged by the strong underlying momentum in our business, we remain cautious given the uncertainty surrounding COVID-19 cases, and the potential negative impact on hospitals and ASCs. Our guidance is highly sensitive to assumptions on a global recovery, which anticipates more normalized case scheduling and elective procedure levels progressing throughout the year. Based on these assumptions, we expect total revenue of $92 million to $94 million, representing growth of 25% to 28%, compared to full-year 2020. Additionally, we expect to end 2021 with approximately 90 direct sales representatives, and 60 clinical support specialists, up from 64 and 58, respectively, in 2020. Lastly, we expect gross margin to trend toward the mid-to-high 80% range in 2021, as we increase spending in operations to support growth of the business. I will now turn the call back over to Jeff for closing comments.

Thank you, Laura. In closing, our confidence in the opportunity in front of us for the business and for shareholders is stronger than ever. With the additional funding we have put in place and an accelerated investment and growth plan. Most importantly, it will help us achieve our mission to help many more patients, direct to patient initiatives, increase surgeon training, additional field sales personnel to educate and support the surgeons, new product development and automation and scaling initiatives are the five key focus points of our investment strategy. With reimbursement broadly established in the U.S., we believe that now is the time to invest in substantial growth in our market, and as the market leader, we and our shareholders will be the beneficiaries of that market expansion. Thank you for joining the call today. We will now open it up to questions.

Thank you. [Operator Instructions] Our first question comes from David Lewis with Morgan Stanley. Your question please.

Thanks and good afternoon. First, Jeff, congratulations on building a fantastic company and creating a dramatic amount of value. You will be missed. And Laura, congratulations on the new position.

Thanks David.

Thank you, David.

A couple of things here. Just want to focus on guidance and then the pipeline here, so a couple of questions on guidance. The first is just for either Jeff or Laura, just what did you see throughout the - we're getting pretty late here in the first quarter, so what transpired in the business, sort of late February into March, because in consensus, kind of has your business down kind of 10% sequentially, sort of what do you see in the business February, March, and what's the relative comfort at that sort of $20 million level kind of building off of the start of the year?

Maybe I can?

Sure. Go ahead Laura.

So, I'll just talk about the quarter in general. And from a January perspective, if you call this the third COVID surge, I would put January as the trough, you had the highest, you know cases that were out there. There were issues in the hospitals, there were issues with elective procedures in hospitals, and there was also patient concern. And so, we actually experienced a decline in the month of January in our business for the first time since April of 2020. But then in February, we started to see a return. COVID started to abate. And so, we had, you know, fewer canceled cases in February, although to be honest, February was impacted by some of these ice storms as well. We saw a lot of cases that were canceled to be rescheduled, and so it did tend to be in the Texas area, in the mid-part of the country where there were some issues, but we did see positive growth in the month of February. And then as you know, we look at our case bookings honestly every single day. But you know, certainly at the very beginning of the month, we just take a look at where our case bookings are at. And our case bookings are at a historic high for March. They're the highest that they've ever been at the beginning of the month. So, what appears to be happening is that, like I said, you saw this trough in January, a return to growth in February, and then a very strong start to March. And if you take all of that information and you link it to our guidance, you know, what we're saying is, we don't think that March is going to make up for what we saw in January and February, but we're starting to see the rescheduling of those cases that were canceled in Q4 as well as those cases that were canceled in January and February.

Okay, that's super helpful. And maybe I’ll just ask my next two and I'll jump back in queue. One is another guidance based question. So, as I look at 2021 guidance, and I appreciate you providing guidance because frankly many of your peers did not do so, but look it represents 40% growth, 2021 over 2019, you know 20% per annum growth, which I frankly think the underlying business is probably tracking higher than secondarily [Technical Difficulty].

Hello.

It seems that we lost David. David, when you return just [indiscernible].

Sorry about that one. Can you hear me now?

Yes, sir.

The – so in just 2021 guidance, it's 40 – you know 20% per annum growth, but then sequentially, Laura, Jeff, if I back out stocking and the backlog, it’s kind of 20% growth into the fourth quarter, which is pretty robust suggesting kind of 2021 guidance, a little conservative. So, what kind of went into that 2021 number? I guess is the question on guidance kind of first half versus second half. And then Jeff, maybe for you, just you, I don't think anyone really is focusing on significant impact from the fixation business. But now when I think about diligence we’re getting from fixation from Bedrock, and then the second generation launch you have in the second half of 2021, I sort of feel like this can be a much bigger part of the business, 2022 and beyond. So, maybe just sort of share your thoughts on what percent of the business that could be or some of the trends you're seeing there. Thanks so much, and sorry, for the connection problem.

Yeah, no worries. Laura, you want to take the first one? And I'll do the second.

That's perfect. Yeah. So, in terms of how we thought about the guidance, what we were taking into consideration is the impact of COVID early in this year, and then what we're assuming is that COVID will diminish with each sequential quarter as vaccine availability improves and patients begin to seek elective care and typical levels. So, the assumption here is that we will see more normalized case scheduling and elective procedure levels beginning in the second quarter of 2021. So, I hope that's helpful information, and Jeff, maybe you can answer the second question.

Sure. So David, as you know, there are three parts to business, the core SI joint fusion business, they're very solid, feeling great about it. And the fixation business or the adult deformity space, which I think you are just generalizing and calling fixation, it's turned out that this is not an easy sell, but a very straightforward sell. And, in fact, surgeons understand the dynamics of the situation, and that there's 29%, some kind of complication with these adult deformity cases at the base of the spine, and the biomechanics are very clear that there is additional adjacent segment disorder effect from that. And we're engaged with dozens and dozens of surgeons across the country that are very excited about this particular area. And so, although it was not a huge part of the business, in 2020, we certainly expect it to be a growth driver for us in 2021 and 2022, particularly as we, as you know, the Bedrock technique is more of a technique with the same product that's longer. But as we introduce the next generation product late this year, we can envision – not every surgeon, but any surgery, we believe that goes to the sacrum, we think will benefit from our next generation product or even from the current Bedrock technique. So, I don't think we've had – but a handful of surgeons will say, that's not necessary; the vast, vast majority think this makes complete sense. No one has anything like this. And when you see our next generation product, I think it will – it has a chance to become a very standard part of adult deformity, which is a good size market. And then on the trauma side, we, you know, as we've said, we're going to introduce the trauma and SI joint fusion core product in the first half of this year. So, you will see that in the not too distant future, and we believe the reception for that product is going to be very robust. You know, deformity or trauma screws have had no invention, to speak of, as we see it. And there are lots of aspects to improve the capability of trauma devices. And I think we've incorporated lots of those things in this new product line. And we think it'll also help grow the business in our base SI joint fusion business. So, on both fronts, we are, we are quite excited about both. And most importantly, it's because the surgeons that we've engaged in with all the labs that we've done out there, testing the product, trying the product iterating the product, have made great progress and Tony Recupero and Nik Kerr, who have led that charge, along with our engineering team led by Scott Yerby have just done an extraordinary job setting those product lines up based on the needs out there, not on what we thought, but what on the needs were.

Great, Jeff, Laura, thanks so much.

You're welcome.

Thanks, David.

Okay, thanks and good afternoon. Appreciate the call here. A couple of things just following up on David's questions. I'm sorry if I missed this, but Laura, I'm just curious relative to where consensus is for the first quarter, is that a number that you're roughly comfortable with?

So, if you take a look at where the numbers are currently at, and I think that consensus was around $94.8 million for the year, we are providing guidance of $92 million to $94 million, certainly is [indiscernible].

[Probably some more on the] – just in the first quarter.

Certainly, a good portion of that difference is related to the first quarter. And so, if you think about what I said about January and February, we actually had a decline in the business in January, and then a return to growth in February. And we see a very strong March, but not to the levels of making up for what happened in January and February. So, lower numbers [than Q1].

Got it. No, no, thank you. I apologize for interrupting. That was very clear. Okay. And then something else, you said in response to David's questions really caught my attention, though. Case bookings for March are the highest ever, could you just – by ever, do you mean heading into any month in the history of the company…?

Heading into any month of the company ever.

Okay.

And so what it tells me is that we're seeing cases return to more normalized level, but then on top of it, we're seeing these rescheduled cases coming in. That's what I believe is happening based on looking at our bookings.

Okay. Interesting.

So, kind of similar to what we saw a year ago in Q2, you certainly didn't have the trough that we saw in March and April of last year, but as you may recall, our April was a decline then May we saw some growth. And then we started to see very strong growth in June and July, which included those new cases, as well as the rescheduled. And this feels like the same exact pattern once again.

Okay. Is that well balanced across the country or is it, you've got a couple of really active places and then a couple that still need to catch up from a booking perspective?

You're right. It is still – it's variable by region, you know, so for example, our southwest region is still a little bit behind where we would have expected for it to be so, you know Southern California, those areas still appear to be challenging, but most of the areas of the country we're seeing a very nice rebound.

And at the same time I think, Bob in Europe where we're seeing countries like France and Germany doing really, really well, but the UK is trailing because of COVID.

Yeah.

You know, UK was coming on so strong before COVID. We expect that to, you know, once that dissipates we would expect that to be a major contributor in a very positive way, once we get a little farther down the road with the vaccines.

And then for either Laura or Jeff, I mean, the launch that's happening in the first half of the year on the trauma side, can you just spend a quick second on, you know, exactly what you're launching and maybe set some expectations like how big, how do you quantify this market opportunities? Just a little more color on the first launch that you're scheduling on the trauma side? And that'll do it for me. Thank you.

Yes, sure Bob. So, you know, what we've said is that the device that will be used both on the trauma side and the core business, you know, we have gotten clearance on that product. So, we're just ramping up training and getting ready for the launch in inventory and that kind of thing. So, we have it almost ready to go. So, we'll certainly launch it in the first half. But in the trauma space, it's for, you know, it can be used for fixation of either small or large bones. And that could be either in high energy fractures or low energy fractures, depending upon the particular circumstance. So, it'll be, I think, a very effective capability to fixate in bones in the trauma space. We think better than anything that's out there in the marketplace today. And then in the core business, of that SI joint fusion, we're seeing – we think there's a significant capability or opportunity there to augment our leadership product in certain circumstances. And if you just be a little patient with us, it's not that far off that we’ll launch that product.

Okay, great. Thank you very much, and congrats all around.

Thanks Bob.

Thanks Bob.

Great, thank you for taking the questions. So, I just wanted to ask a little bit more about the simulators. I mean, it sounds like that's obviously, you know, a huge initiative, you've got a lot more simulators coming on by the end of the first half, can you just maybe help us understand, you know, how that changes, like the ROI of your marketing and education programs? Does it allow you to take a wider shot of surgeons, or does it allow you to go deeper into specific territories and accounts? I’m just trying to understand what that looks like? And then how that productivity with the simulator, you know, varies with, you know, some of your prior historical in-person cases? I’m just trying to understand the on-boarding and the productivity opportunity here.

Yeah. So, [Bob] good morning. Why don’t don't I start, and then you can add in, you know, with the new simulators, because they're so convenient, where you can train anyone in their office without any radiation, it will absolutely expand the number of people that we train, and do so cost-effectively, Kyle. So, you know, if we're training someone who we think is going to go on to do a case, and you got to fly him to, you know, three hours, and, you know, can cost thousands of dollars. Here, you know, if we think someone's going to do a case, it costs us very little to go and train them. So, we can go wide, and it’s also from a productivity standpoint, a much greater capability. Because if you think about the numbers, and you have, let's call it 20 simulators out there, and they're used 50 weeks a year. And they're used a couple of times a week, even trading as many as a couple of thousand surgeons. And if you train a couple in a session, you know, the numbers go up. So, it almost gives us a limitless capability to train as many surgeons as want to get trained. It's also, you know as we’ve said in the past interesting to see how many surgeons are interested in the technology because it allows you to look at your progress along the training way. So, with the cadaver lab, you put the screws in or you put the implants in, I should say and you really can't see exactly where they are till the end. Here you can, you can all along the process take as many pictures as you like without any radiation. So, it's a very attractive thing and I think the trick in the whole thing is to make sure that we're choosing good surgeons and using our time effectively, but this makes the ability to widen the number much easier.

Great. And then I think, earlier this year, I mean, I think it was maybe on the Q2 or Q3 call, you talked about, you know sort of agreements with some of the larger chain, you know ASCs and outpatient centers, just maybe comment on what type of trends you're seeing as far as the location of procedures in 2020, and kind of how you think about that evolving in 2021? And then how that might influence, you know, pricing in [ASCs] on a per procedure basis?

I can talk a little bit about that, Jeff.

Sure.

So, our sales in ASCs have continued to climb. We're getting close to 20% of our sales that are now in an ASC setting. And we think it is a very important setting for our procedure given the simplicity of the procedure, as well as the surgeon's desire to be in an ASC in certain cases. And so we are continuing to see a trend in that particular direction.

Great. Thank you for taking the question.

Thank you, Kyle. Our next question comes from Dave Turkaly with JMP Securities. Your question please.

Hi, congrats again on the executive leadership changes. Maybe you know you’ve shown some really good progress of late with the active surgeon, you know getting increase in that basis, wondering as we look to the 2021 guide, is there any color in terms of how many you think you'll need to add to get to that 25% to 28% growth is that, you know, I know you mentioned rep adds. But I'm curious is where you think that stat plays into, sort of your forecast and should we expect over 100 new surgeons to become active this year?

Yeah. It's a good question. So, in terms of how we are starting to think about active surgeons, we're looking at historical patterns. And historically, what we've done since we went public is we've increased both the number of active surgeons that are using our product, as well as the number of procedures that the active surgeons are performing. So, for example, when we went public, on average an active surgeon was doing around three cases per quarter instead now they're doing close to four cases per quarter instead. And so what we were baking into our guidance is an assumption that the increase in the active surgeons would account for the majority of that growth, but there would also be some additional growth in the number of procedures being performed per active surgeon.

Got it. And, Jeff, I think I heard you say the word profitability there. So my follow-up would be, as we look to 2021 should we expect more operating leverage? You've been showing some of late, I know, you've cut down the spending, and I mean the hefty growth rate you've forecasted for the year, but I guess just any color in terms of a bigger or smaller loss in 2021 directionally and anything you want to add? Thanks so much.

Yeah, you're welcome, Dave. So, we've said in 2021 we are going to increase the loss a bit. So, we haven't slowed down the spending at all. And as Laura shared earlier, you know, our guidance for the year is just a little bit less because of the Q1 effect of COVID and these storms in February. So, you know, net-net we're going to widen the loss. You know, when we think about 2022, you know, we feel like okay, now we can get back to hopefully to a more normal world, and get leverage in the business. And as you saw the gross margin is holding pretty strong with 90% gross margins, and you know, we certainly expect it to decline going forward somewhat. But we are going to have a wider loss this year because of the increased accelerated spending plan and the slightly less revenue forecasts because of COVID.

Thank you.

You’re welcome.

Our next question comes from Kaila Krum with Truist. Your question please.

Hi, guys. Thanks for taking our questions. So, just a follow-up on the two new product launches coming. Can you just give us a little bit more detail as to how meaningful these launches can be? Mostly how you're incorporating those new products in your guidance as it stands today? And then just on the margin side, how should we think about gross margins, just as these new products are being rolled out and over time?

Yeah. So Kaila, I guess I'll make two comments, one on our market opportunity, second one is on market penetration. Then I'll let Laura talk about margins and those kinds of things. The first one is, in base SI joint fusion, as you know, the markets call it $2.5 billion and it's still less than 10% penetrated. In the trauma and the adult deformity space, we think those markets are hundreds of millions of dollars each. And we think those are almost not penetrated at all. Because the whole opportunity is, we think in front of us because it's a better product. So, you know, putting in S2AI screws in adult deformity patients has not been a great adventure. It's been fraught with a bunch of challenges, and we are sure that our capabilities will be much better than that. And more importantly, the surgeons will think that. So, you know, putting an S2AI screws in adult deformity patients is not been a great adventure. It's been fraught with a bunch of challenges, and we are sure that our capabilities will be much better than that. And more importantly, the surgeons will think that. So, you know, the penetration rate is very low there as well. So, I think in all three markets, you know, there's just tons of opportunity, but you know, on a relative basis, you know, you're talking about 2.5 billion, you're talking about a few 100 million and a few 100 million. So, that just gives you a picture of market size, market penetration, and then Laura can talk a little bit in general about the gross margins.

Yeah, so I did give a little bit of information on gross margin in the script. And what we're expecting is that gross margins are going to continue to move a little further downward. It's hard. First of all, it's hard to keep up a 90% gross margin, which we have in this last quarter. We've obviously been very careful about our spend throughout the COVID challenges. And, you know, given how high our gross margins are we don't want to lose business based on margin. And then we talked a little bit about ASCs previously and there does normally tend to be a little lower price that we get in an ASC, but we have seen ASCs as absolutely critical sites of service. We're growing business there. We're growing market share there. And so they've been a very important place for us to sell. Getting to your question about the new product launches, the new products, in certain cases may have contributed to lower gross margins as well. In some cases, we'll be using two implants versus three implants with our surgeons, depending upon which product we're talking about. For example, right now our Bedrock product uses two implants versus the three in our typical iFuse procedure. And so for all of those reasons, we are providing guidance that say our gross margins should be expected to be in the mid-to-high 80% range.

Got it. Now that makes a ton of sense. And then you guys are, I mean you're hiring quite a bit, you've promoted some folks and in sales and you've added new leadership. So first, what are you sort of expecting the cadence of sales rep hires to be over the course of this year? You know, it sounds like there’ll be more front half weighted. And then Have you made any sort of material changes to sales force compensation or priorities this year, as compared to last? Thanks for taking our questions.

You’re welcome. From a hiring standpoint, we are continuing to aggressively hire, Kaila, you know, but you know, the hiring done during this year really will affect 2022. So, but we're, we absolutely believe I mean, it's the base tenant or putting more feet on the street to, particularly when you're going to – we're going to have three different areas, SI joint fusion, adult deformity, and trauma. We need more people out there to support those surgeons. So, we haven't slowed down the cadence. The team is hard – the management team is hard at work trying to bring on and successfully bringing on some really fantastic people. You know, with regards to compensation, I think we've shared with you in the past that the sales force is mostly compensated on commissions related to the revenue that they bring in. But they also have a component that is associated with training to encourage initiatives and efforts in that particular area, which yields fruit down the road. And they're completely bought into that, they understand that. We have a very sophisticated group. And I think Tony and Troy have done a great job making sure everyone understands the plans. And I think, you know, more of the same as the right thing to do.

Thank you, guys.

You're welcome.

And our next question comes from David Saxon with Needham. Your question please.

Yeah, good afternoon everyone, and thanks for taking the questions. My first one just on…

Hi David.

Yeah. Hey, Jeff. Just on the fourth quarter, I think you said you had about 150 cancellations. It sounds like you also have a lot in January. So just wondering, you know how many you expect to come back and over what period of time? And then just looking at guidance, I guess, you know what does guidance assume in terms of how many come back?

So, I can give some information on the fourth quarter? I mean, you're right, David. We saw around 150 in the fourth quarter. And then we saw more in January in February. And what's difficult about those numbers that that we're providing in terms of cancellations, those are only the ones we're aware of. And, you know, what that means is that there are probably a lot more cases that never made it to us, they never got on our books. Because the surgeon, you know, never booked them or they were cancelled before they actually came to us. So, we think that, you know, those numbers provide a good proxy for us to understand what was going on, especially related to COVID. But they certainly don't tell you the extent of the issues that our surgeons were having due to COVID. In terms of the return of the business, it's – that’s another interesting question. And that's why, you know, we felt it was important to provide month-by-month commentary to you and then do a comparison of what happened in mid-2020, when there were COVID issues. So, like I said, January looked like a trough. February, we start to see the return of growth on a year-over-year basis to the business and then March we are seeing the highest bookings we've ever had in the history of the company just for this particular month. And so what does that mean? It likely means that, you know, we're seeing those rescheduled cases coming back in. So, when this happened a year ago, we saw in the month of May a return of the business; in June, very high growth; in July, very high growth; and then, you know, more moderated growth in August and September. So it really takes around 90 days to get back a good portion of those rescheduled cases. And, you know, we are assuming that we should be able to see those cases coming in. Now, if there continue to be issues in certain places that question was asked about, are there still problem areas? There definitely are, you know, if there were resurgences or, you know other things where COVID continues to impact the business, you know, we didn't want to really bake all of that into the guidance. So, instead as I said, what we did was we assumed that Q1 was impacted in January, February, and that we would see this move back to more normalized case, bookings in the second quarter, and then further improving in Q3 and in Q4.

Great, very clear, and thanks for that color. My second question is on the direct marketing campaigns, can you just talk a little bit more about those? And how are you measuring the success of those initiatives? And is there any way you can use these as an incentive to get doctors trained in the regions you're targeting initially? And thanks so much for taking the questions.

Sure David. So there – as we mentioned, you know, there are a number of TV ads running in multiple cities. We really measure it by how many patients call the call center and ask for the names of a few surgeons to make an appointment with, as we always give out multiple names in a particular locale, or you know, near that person's or patients zip code. And, of course, we would do our best to track those patients through to measure the programs. That said, we've done some testing. I would say we've upped our game tremendously by bringing in Brian Broveleit, who has, with his advertising agency experiencing lots of these programs across many, many companies. His experience at Kellogg, obviously one of the better consumer companies in the world, and his medical device experience. So, I feel like, okay, we've taken the ball about 10 yards down the field, and we're going to give it to Brian, along with the rest of the team who's done some great initial work. And we will hone it a lot. So, I think we're going to get some read-outs from the initial programs. But I expect Brian and the team to refine this program tremendously over the next 6 months, 12 months. So that becomes an important part. I think it's strategically an important part of the business, to be able to get the patients to get them to understand that that there is a robust, clinically effective procedure out there so that they don't have to get injections over a long period of time. And that they actually can get fixed and stop going to the doctor. And so, I think it's a very exciting message. I think they've done, as I said, a great job, starting with the program. But I think, for us to really get a great deal of how the program is working. I think Brian was here, you know, nudging me, he'd say, you know, I'm really not going to know how this whole thing works in crisply for 9 months to 12 months. And, but we absolutely fervently believe that it's going to be a driver in the business, certainly in 2022 and 2023.

Great, thank you.

You're welcome.

And with that, ladies and gentlemen, we thank you for participating in today's conference. You may now disconnect. Have a wonderful day.